Bay Area Commission Rebate Tax Questions

First of all I am not a CPA and I advice everybody to investigate what I am going to say here.

This is no legal or tax advice. I am a real estate broker and as such I can not give legal or tax advice

How much tax should I pay when I receive a Cask Back from a Broker or Real Estate Agent?

This question is normally asked by buyers who are about to get a cash back in escrow.

The answer is zero percent, but you can do it two ways. The hard way and the easy way.

Let's start with the easy way.

The easy way is to make your agent write it on the offer or purchase contract something in this formate:

Buyers will get $15,000 dollar cash back within the escrow.

The money you will get from your agent will be used to pay your closing costs and reduction of the purchase price.

Because you will not get paid outside the escrow, you will not get a 1099. If you do not get a 1099 then you most probably do not have to explain anything to IRS about this money. Everything is crystal clear. You get a price reduction from the seller in form of Commission Rebate from your agent. Seller paid a commission to your broker, thus his profit from the sale is decreased. You got this commission money from your Real Estate Broker, but this money is spend to get a better price for the house.

The hard way to do the same thing is to force your broker to pay you outside the escrow. Suddenly everybody have to explain themselves to IRS.

Title company issued a check to your broker for full amount and when the broker issue a check to you as cost of sale it might raise some questions with IRS.

Also you as buyer will get a 1099 and have to ask your CPA to explain to IRS that this money is really a reduction of sale price and not an income.

So let's keep things simple. Let's keep all the Cash Back, Commission Rebates or Buyers rebate within the escrow, to make life easier for everybody

Broker of American Dream Realty

HR Dadgar